Honest Signalling with Costly Gambles

Costly signalling theory is commonly invoked as an explanation for how honest communication can be stable when interests conflict. However, the signal costs predicted by costly signalling models often turn out to be unrealistically high. These models generally assume that signal cost is determinate. Here, we consider the case where signal cost is instead stochastic. We examine both discrete and continuous signalling games and show that, under reasonable assumptions, stochasticity in signal costs can decrease the average cost at equilibrium for all individuals. This effect of stochasticity for decreasing signal costs is a fundamental mechanism that probably acts in a wide variety of circumstances.